In late 2013, the Alabama Supreme Court issued three important decisions regarding Alabama’s law of foreclosure and assignments. While the decisions did raise new issues concerning standing in general, they also helped put to rest some uncertainty as to when a foreclosure actually takes place and the significance of an assignment.
The court in In re Patterson v. GMAC Mortgage, LLC (Ms. 1110547, Sept. 13, 2013), clarified what constitutes a “foreclosure” in Alabama. Here, when borrowers defended an eviction action and argued that GMAC lacked the power to foreclose at the time it “initiated foreclosure proceedings by posting notice of the planned sale” (which was before they received the assignment of mortgage), the Alabama Supreme Court held that preliminary measures to a foreclosure sale, such as the publication of notice and acceleration of the loan, do not trigger issues of standing as the party who has the right to foreclose must be established by the completion of foreclosure. The court held that a foreclosure occurs when the power of sale is executed. The “foreclosure” of a mortgagor’s rights does not occur until the “end”, when a deed divesting the mortgagor of its rights is signed and delivered to a purchaser. As long as the party executing the sale is authorized to foreclose at that time, then the foreclosure sale is valid.
The Alabama Supreme Court clarified standing in an eviction action in In re Sturdivant v. BAC Home Loans Servicing, LP (Ms. 1110373, Sept. 13, 2013). Here, BAC Home Loans held a foreclosure sale on property owned by Bessie Sturdivant, purchased the property at sale, and then filed an eviction action against Sturdivant. Sturdivant waited until after the trial court granted summary judgment in BAC’s favor to argue that BAC lacked standing to bring the eviction action because it had not received the assignment of her mortgage when it initiated foreclosure proceedings. The Alabama Supreme Court held that under state law, an eviction defendant may not claim that the eviction plaintiff lacks standing simply because the party that conducted the foreclosure sale wasn’t the holder of the note or mortgage at the time it conducted the sale. The defendant may raise the foreclosing party’s alleged lack of power to conduct a foreclosure sale as a defense, but any problems with an eviction plaintiff’s proof that it is entitled to possession of property as a result of a foreclosure deed goes to the substantive merits of the eviction claim and must be raised otherwise it will be waived and cannot be used as a defense.
In Harris v. Deutsche Bank National Trust Company (Ms. 1110054, Sept. 13, 2013), the Alabama Supreme Court discussed the issue of a party that does not hold a promissory note to execute a power of sale in a mortgage. Here, the borrowers executed a note and mortgage in favor of SouthStar Funding, with MERS as the lenders nominee. The borrowers defaulted and after MERS assigned the mortgage to Deutsche Bank as trustee, Deutsche Bank conducted a nonjudicial foreclosure. The bank filed an eviction action and the borrowers defended by challenging the bank’s power to foreclose. The Alabama Supreme Court held that a party is entitled to foreclose if it is a party “who, by assignment or otherwise, becomes entitled to the money thus secured.” However, the court was unable to reach a decision on whether Deutsche Bank was the party entitled to foreclose and remanded for review. The safe way to proceed in the future then is to ensure that even if there is an assignment of mortgage, servicers should make sure to also have the note in their possession, either endorsed in blank or into the foreclosing entity.